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SEC: Wells Fargo will pay $5.1M to settle misconduct claims

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the SEC on Monday announced Wells Fargo will pay $5.1 million to settle charges of financial misconduct. File Photo by Mike Mozart/Flickr

By Ray Downs, UPI

Wells Fargo will pay $5.1 million to settle charges of financial misconduct, the Securities and Exchange Commission announced on Monday.

According to the SEC, Wells Fargo generated large fees by improperly encouraging retail customers to actively trade market-linked investments, which were intended to be held to maturity. This strategy required that the MLIs be traded before they matured and investing the proceeds in new MLIs, which generated substantial fees for Wells Fargo while reducing their customers' investment returns.

In addition, the SEC found that Wells Fargo did not properly investigate employees who were engaged in the practice and supervisors systematically approved the transactions, despite internal policies prohibiting similar practices.

"It is important that brokers do their homework before they recommend that their retail customers buy or sell complex structured products," Daniel Michael, Chief of the SEC's Enforcement Division's Complex Financial Instruments Unit. "The products sold by Wells Fargo came with high fees and commissions, which Wells Fargo should have taken into account before advising retail customers to sell their investments and reinvest the proceeds in similar products."

Wells Fargo will pay a $4 million fine and agreed to return $930,377 of ill-gotten gains plus $178,064 of interest.

Wells Fargo agreed to the settlement without confirming or denying the SEC's accusations.

"We are committed to helping our clients achieve their investment goals and cooperated fully with the SEC's investigation," Shea Leordeanu, a Wells Fargo spokeswoman said in statement to Bloomberg. "We previously made policy and supervision changes related to this matter to improve internal controls."